IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

International reserves and rollover risk

  • Javier Bianchi
  • Juan Carlos Hatchondo

This paper provides a theoretical framework for quantitatively investigating the optimal accumulation of international reserves as a hedge against rollover risk. We study a dynamic model of endogenous default in which the government faces a tradeoff between the insurance benefits of reserves and the cost of keeping larger gross debt positions. A calibrated version of our model is able to rationalize large holdings of international reserves, as well as the procyclicality of reserves and gross debt positions. Model simulations are also consistent with spread dynamics and other key macroeconomic variables in emerging economies. The benefits of insurance arrangements and the effects of restricting the use of reserves after default are also analyzed.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.dallasfed.org/assets/documents/institute/wpapers/2013/0151.pdf
Download Restriction: no

Paper provided by Federal Reserve Bank of Dallas in its series Globalization and Monetary Policy Institute Working Paper with number 151.

as
in new window

Length:
Date of creation: 2013
Date of revision:
Handle: RePEc:fip:feddgw:151
Contact details of provider: Web page: http://www.dallasfed.org/
Email:


More information through EDIRC

Order Information: Email:


References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Pierre-Olivier Gourinchas & Maurice Obstfeld, 2012. "Stories of the Twentieth Century for the Twenty-First," American Economic Journal: Macroeconomics, American Economic Association, vol. 4(1), pages 226-65, January.
  2. Kathryn M. E. Dominguez & Yuko Hashimoto & Takatoshi Ito, 2011. "International Reserves and the Global Financial Crisis," NBER Chapters, in: Global Financial Crisis National Bureau of Economic Research, Inc.
  3. Michael M. Hutchison & Ilan Noy, . "Sudden Stops and the Mexican Wave: Currency Crises, Capital Flow Reversals and Output Loss in Emerging Markets," EPRU Working Paper Series 02-12, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  4. Neumeyer, Pablo Andrés & Perri, Fabrizio, 2004. "Business Cycles in Emerging Economies: The Role of Interest Rates," CEPR Discussion Papers 4482, C.E.P.R. Discussion Papers.
  5. Harold L. Cole & Timothy J. Kehoe, 1998. "Self-fulfilling debt crises," Staff Report 211, Federal Reserve Bank of Minneapolis.
  6. Dani Rodrik, 2006. "The social cost of foreign exchange reserves," International Economic Journal, Taylor & Francis Journals, vol. 20(3), pages 253-266.
  7. Irina A. Telyukova, 2007. "Household Need for Liquidity and the Credit Card Debt Puzzle," 2007 Meeting Papers 515, Society for Economic Dynamics.
  8. Mark Aguiar & Gita Gopinath, 2004. "Defaultable Debt, Interest Rates and the Current Account," NBER Working Papers 10731, National Bureau of Economic Research, Inc.
  9. Enrique G. Mendoza & Ceyhun Bora Durdu & Marco Terrones, 2007. "Precautionary Demand for Foreign Assets in Sudden Stop Economies; An Assessment of the New Merchantilism," IMF Working Papers 07/146, International Monetary Fund.
  10. Juan Pablo Nicolini & Francisco Buera, 2002. "Optimal Maturity of Governement Debt without state contingent bonds," Department of Economics Working Papers 016, Universidad Torcuato Di Tella.
  11. Cristina Arellano, 2008. "Default Risk and Income Fluctuations in Emerging Economies," American Economic Review, American Economic Association, vol. 98(3), pages 690-712, June.
  12. Uribe, Martin & Yue, Vivian Z., 2006. "Country spreads and emerging countries: Who drives whom?," Journal of International Economics, Elsevier, vol. 69(1), pages 6-36, June.
  13. Yan Bai & Cristina Arellano, 2012. "Linkages across sovereign debt markets," 2012 Meeting Papers 414, Society for Economic Dynamics.
  14. Lizarazo, Sandra Valentina, 2013. "Default risk and risk averse international investors," Journal of International Economics, Elsevier, vol. 89(2), pages 317-330.
  15. Aizenman, Joshua & LEE, JAEWOO, 2005. "International Reserves: Precautionary versus Mercantilist Views, Theory and Evidence," Santa Cruz Center for International Economics, Working Paper Series qt44g3n2j8, Center for International Economics, UC Santa Cruz.
  16. Gianluca Benigno & Luca Fornaro, 2012. "Reserve accumulation, growth and financial crises," LSE Research Online Documents on Economics 51506, London School of Economics and Political Science, LSE Library.
  17. Irina A. Telyukova & Randall Wright, 2008. "A Model of Money and Credit, with Application to the Credit Card Debt Puzzle," Review of Economic Studies, Oxford University Press, vol. 75(2), pages 629-647.
  18. Juan Carlos Hatchondo & Leonardo Martinez & Horacio Sapriza, 2010. "Quantitative properties of sovereign default models: solution methods," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(4), pages 919-933, October.
  19. Guillermo A. Calvo & Leonardo Leiderman & Carmen M. Reinhart, 1993. "Capital Inflows and Real Exchange Rate Appreciation in Latin America: The Role of External Factors," IMF Staff Papers, Palgrave Macmillan, vol. 40(1), pages 108-151, March.
  20. Guillermo A. Calvo & Alejandro Izquierdo & Rudy Loo-Kung, 2012. "Optimal Holdings of International Reserves: Self-Insurance against Sudden Stop," NBER Working Papers 18219, National Bureau of Economic Research, Inc.
  21. Laura Alfaro & Fabio Kanczuk, 2007. "Optimal Reserve Management and Sovereign Debt," NBER Working Papers 13216, National Bureau of Economic Research, Inc.
  22. Cristina Arellano & Ananth Ramanarayanan, 2008. "Default and the maturity structure in sovereign bonds," Globalization and Monetary Policy Institute Working Paper 19, Federal Reserve Bank of Dallas.
  23. Kristin J. Forbes & Francis E. Warnock, 2011. "Capital Flow Waves: Surges, Stops, Flight, and Retrenchment," NBER Working Papers 17351, National Bureau of Economic Research, Inc.
  24. Michael Dooley & David Folkerts-Landau & Peter Garber, 2005. "An essay on the revived Bretton Woods system," Proceedings, Federal Reserve Bank of San Francisco, issue Feb.
  25. Juan Carlos Hatchondo & Leonardo Martinez, 2009. "Long-duration bonds and sovereign defaults," Working Paper 08-02, Federal Reserve Bank of Richmond.
  26. David Benjamin, 2008. "Recovery Before Redemption," 2008 Meeting Papers 531, Society for Economic Dynamics.
  27. Caballero, Ricardo J. & Panageas, Stavros, 2008. "Hedging sudden stops and precautionary contractions," Journal of Development Economics, Elsevier, vol. 85(1-2), pages 28-57, February.
  28. Juan Jose Cruces & Marcos Buscaglia & Joaquin Alonso, 2002. "The Term Structure of Country Risk and Valuation in Emerging Markets," Working Papers 46, Universidad de San Andres, Departamento de Economia, revised Apr 2002.
  29. Jeffrey A. Frankel & George Saravelos, 2010. "Are Leading Indicators of Financial Crises Useful for Assessing Country Vulnerability? Evidence from the 2008-09 Global Crisis," NBER Working Papers 16047, National Bureau of Economic Research, Inc.
  30. Olivier Jeanne & Romain Rancière, 2011. "The Optimal Level of International Reserves For Emerging Market Countries: A New Formula and Some Applications," Economic Journal, Royal Economic Society, vol. 121(555), pages 905-930, 09.
  31. Leonardo Martinez & Horacio Sapriza & Juan Carlos Hatchondo, 2010. "Quantitative Properties of Sovereign Default Models; Solution Methods Matter," IMF Working Papers 10/100, International Monetary Fund.
  32. Eaton, Jonathan & Gersovitz, Mark, 1981. "Debt with Potential Repudiation: Theoretical and Empirical Analysis," Review of Economic Studies, Wiley Blackwell, vol. 48(2), pages 289-309, April.
  33. George-Marios Angeletos, 2002. "Fiscal Policy With Noncontingent Debt And The Optimal Maturity Structure," The Quarterly Journal of Economics, MIT Press, vol. 117(3), pages 1105-1131, August.
  34. Adrien Verdelhan & Nicola Borri, 2010. "Sovereign Risk Premia," 2010 Meeting Papers 1122, Society for Economic Dynamics.
  35. Aguiar, Mark & Gopinath, Gita, 2007. "Emerging Market Business Cycles: The Cycle is the Trend," Scholarly Articles 11988098, Harvard University Department of Economics.
  36. Atish R. Ghosh & Jonathan David Ostry & Charalambos G. Tsangarides, 2012. "Shifting Motives; Explaining the Buildup in official Reserves in Emerging Markets Since the 1980's," IMF Working Papers 12/34, International Monetary Fund.
Full references (including those not matched with items on IDEAS)

This item is featured on the following reading lists or Wikipedia pages:

  1. Canadian Macro Study Group

When requesting a correction, please mention this item's handle: RePEc:fip:feddgw:151. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Amy Chapman)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.